The Budget 2016-17 is a disappointing one for the Indian automotive industry.

While the automobile industry is generally considered as a strategic area in economic, industrial and technical development of the country, there were no bold steps announced for revival of the sector, which has been struggling with declining growth rates.

Rs 10 lakh,Some of the key budget highlights from an automotive sector perspective are outlined below.

The corporate tax rate has been reduced marginally from 30% to 29% for domestic companies whose turnover does not exceed Rs 5 crore.

Newly set-up companies, engaged in manufacturing activities, have been provided the benefit of a reduced corporate tax rate of 25% provided the company does not opt for any specified direct tax incentives including accelerated depreciation.

Relaxation in conditions related to investment allowance and tax incentive for employment generation are welcome and should give impetus to domestic demand.

However, the said benefit has been offset by the proposed phasing out of all incentives latest by the year 2020 - whether in the form of withdrawal of profit linked incentives or reduction in existing tax benefits such as accelerated depreciation or weighted deduction on scientific research.

The auto sector is further hit by introduction of provision for collection of tax at source @ 1% on the sale of luxury cars with prices exceeding Rs 10 lakh, leading to increased compliance burden on the individual taxpayers.

For multinational corporations, deferment of POEM Rules (for determination of tax residency); much needed clarity on non-applicability of MAT to foreign companies with retrospective effect and status-quo on implementation of GAAR provisions in 2017 are positive moves.

In line with the BEPS Action Plan, provisions for Country-by-Country Reporting have been introduced.

On the indirect tax front, an Infrastructure cess @ 4% has been imposed on all motor vehicles with effect from 01 March 2016, with following exceptions: a) Three wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, motor vehicles which after clearance have been registered for use solely as taxi, cars for physically handicapped persons, and motor vehicles cleared as ambulances or registered for use solely as ambulance;

This levy is likely to have an inflationary effect on car prices, as car manufacturers are likely to recover this additional levy from the end consumer.

Further, accessories of vehicles falling under Chapter 87 of the First Schedule of the Central Excise Tariff Act will now be assessed on the basis of MRP for the purpose of levy of Excise duty.

On the other hand, manufacturers of electrically operated and hybrid vehicles have much reasons to cheer as the exemption available from Basic Customs duty and Central Excise duty on specified goods used in the manufacture of electrically operated vehicles and hybrid vehicles, which was slated to expire in March 2016, has been extended for an indefinite period.

With a view to reduce litigation backlog and promote a tax friendly administration, the Budget looks to incorporate various beneficial provisions under the Income tax law for tax payers focussed on rationalization of penalty provisions, introduction of new Dispute Resolution Scheme, expansion of the scope of electronic processing of information, procedures for paperless assessment and timely processing of tax refunds.

Similarly, on the indirect tax front, the interest rate for delayed payment has been reduced from 18% per annum to 15% per annum, barring specified scenarios.

However, the increase in limitation period for raising of demands (in cases not involving fraud, collusion etc) under Excise and Customs from 12 months to 24 months, and under Service tax from 18 months to 30 months, is likely to result in increased litigation, even as the Government seeks to expedite dispute resolution vide the Indirect tax Dispute Resolution Scheme 2016.

Overall, the budget proposals seek to establish a balanced tax system coupled with tax friendly administration and certainty in tax laws.

The industry only wished that the FM would have included a few more robust measures focused on providing an impetus to the automotive sector.